UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the Quarterly Period ended
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Securities registered pursuant to Section 12(b) of the Act:
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The issuer had
Muzinich Corporate Lending Income Fund, Inc.
Form 10-Q for the Quarter Ended September 30, 2024
TABLE OF CONTENTS
i
Part I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Muzinich Corporate Lending Income Fund, Inc.
Consolidated Statements of Assets and Liabilities
| As of September 30, 2024 (Unaudited) | As of December 31, 2023 | |||||||
| Assets: | ||||||||
| Non-controlled/non-affiliated investments, at fair value (amortized cost of $ | $ | $ | ||||||
| Cash and cash equivalents | ||||||||
| Receivables: | ||||||||
| Interest and other | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities: | ||||||||
| Management fees payable | ||||||||
| Organizational and offering fees payable | ||||||||
| Professional fees payable | ||||||||
| Securities purchased | ||||||||
| Incentive fees payable | ||||||||
| Accrued other general and administrative expenses | ||||||||
| Total Liabilities | $ | $ | ||||||
| Commitments and Contingencies (Note 4) | ||||||||
| Net Assets: | ||||||||
| Preferred Shares, $ | $ | $ | ||||||
| Common Shares, $ | ||||||||
| Additional paid-in capital | ||||||||
| Total distributable (accumulated) earnings (losses) | ||||||||
| Total Net Assets | $ | $ | ||||||
| Total Liabilities and Net Assets | $ | $ | ||||||
| Net Asset Value Per Share | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
1
Muzinich Corporate Lending Income Fund, Inc.
Consolidated Statements of Operations
| For the nine months ended September 30, 2024 (Unaudited) | For the three months ended September 30, 2024 (Unaudited) | For the Period September 8, 2023 (commencement of operations) through September 30, 2023 (Unaudited) | ||||||||||
| Investment Income | ||||||||||||
| Investment income from non-controlled/non-affiliated investments and cash equivalents: | ||||||||||||
| Interest income | $ | $ | ||||||||||
| Total investment income from non-controlled/non-affiliated investments and cash equivalents: | ||||||||||||
| Total Investment Income | ||||||||||||
| Expenses: | ||||||||||||
| Management fees | ||||||||||||
| Organizational fees (Note 3) | ||||||||||||
| Offering fees (Note 3) | ||||||||||||
| Professional fees | ||||||||||||
| Directors’ fees and expenses | ||||||||||||
| Purchased accrued interest expense | ||||||||||||
| Incentive fees expense | ||||||||||||
| Other general and administrative expenses | ||||||||||||
| Total Expenses | ||||||||||||
| Net Investment Income | ||||||||||||
| Net Realized gains/(losses) and unrealized appreciation/(depreciation) on investments | ||||||||||||
| Net realized gains (losses): | ||||||||||||
| Non-controlled/non-affiliated investments | ||||||||||||
| Total net realized gains/(losses) | ||||||||||||
| Net change in unrealized appreciation/(depreciation): | ||||||||||||
| Non-controlled/non-affiliated investments | ||||||||||||
| Total net change in unrealized appreciation/(depreciation) | ||||||||||||
| Total net realized gains/(losses) and unrealized appreciation/(depreciation) on investments | ||||||||||||
| Net Increase (Decrease) in Net Assets Resulting from Operations | $ | $ | ||||||||||
| Basic and diluted net investment income (loss) per common share | $ | $ | ||||||||||
| Basic and diluted net increase (decrease) in net assets resulting from operations per common share | $ | $ | ||||||||||
| Weighted Average Common Shares Outstanding - Basic and Diluted (See Note 8) | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
2
Muzinich Corporate Lending Income Fund, Inc.
Consolidated Statements of Changes in Net Assets
| For the nine months ended September 30, 2024 (Unaudited) | For the three months ended September 30, 2024 (Unaudited) | For the Period September 8, 2023 (commencement of operations) through September 30, 2023 (Unaudited) | ||||||||||
| Increase (Decrease) in Net Assets Resulting from Operations: | ||||||||||||
| Net investment income | $ | $ | $ | |||||||||
| Total net realized gains/(losses) | ||||||||||||
| Total net change in unrealized appreciation/(depreciation) | ||||||||||||
| Net Increase (Decrease) in Net Assets Resulting from Operations | ||||||||||||
| Decrease in Net Assets Resulting from Stockholder Distributions | ||||||||||||
| Dividends and distributions to stockholders | ( | ) | ( | ) | ||||||||
| Dividends and distributions reinvested | ||||||||||||
| Net Decrease in Net Assets Resulting from Stockholder Distributions | ( | ) | ( | ) | ||||||||
| Increase in Net Assets Resulting from Capital Share Transactions | ||||||||||||
| Issuance of common shares | ||||||||||||
| Net Increase in Net Assets Resulting from Capital Share Transactions | ||||||||||||
| Total Increase in Net Assets | ||||||||||||
| Net Assets, Beginning of Period | ||||||||||||
| Net Assets, End of Period | $ | $ | $ | |||||||||
| Net asset value per share | $ | $ | $ | |||||||||
| Common shares outstanding at the end of the Period | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
Muzinich Corporate Lending Income Fund, Inc.
Consolidated Statements of Cash Flows
| For the nine months ended September 30, 2024 (Unaudited) | For the Period September 8, | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net increase (decrease) in net assets resulting from operations | $ | $ | ||||||
| Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities: | ||||||||
| Net change in unrealized (appreciation)/depreciation on investments | ( | ) | ||||||
| Net realized (gains)/losses on investments | ( | ) | ||||||
| Net accretion of discount and amortization of premium on investments | ( | ) | ||||||
| Purchases and drawdowns of investments | ( | ) | ||||||
| Sales and maturities of and principal paydowns on investments | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Interest and other | ( | ) | ||||||
| Management fees payable | ||||||||
| Organizational and offering fees payable | ||||||||
| Professional fees payable | ||||||||
| Securities purchased | ||||||||
| Incentive fees payable | ||||||||
| Accrued other general and administrative expenses | ||||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash Flows from Financing Activities: | ||||||||
| Distributions paid in cash | ( | ) | ||||||
| Distributions reinvested | ||||||||
| Proceeds from issuance of common shares | ||||||||
| Cash provided by (used in) financing activities | ||||||||
| Net increase (decrease) in cash and cash equivalents | ||||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
Muzinich Corporate Lending Income Fund, Inc.
Consolidated Schedule of Investments
As of September 30, 2024 (unaudited)
| Spread Above | Interest Rate/ Discount | Acquisition | Maturity/Expiration | Principal / | Fair | Percentage of Net | ||||||||||||||||||||||||
| Portfolio Company | Industry | Index | Floor | Rate | Date | Date | Units | Cost (1) | Value (3) | Assets | ||||||||||||||||||||
| Non-Controlled/Non-Affiliated Investments | ||||||||||||||||||||||||||||||
| Corporate Bond Investments | ||||||||||||||||||||||||||||||
| Allied Universal Holdco | Services | % | 8/1/2024, 8/8/2024, 9/16/2024, 9/17/2024 | $ | $ | $ | % | |||||||||||||||||||||||
| Alpha Generation Llc | Utilities | % | $ | $ | $ | % | ||||||||||||||||||||||||
| American Airlines/aadvan | Airlines | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Antero Resources Corp | Energy | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Brinker International In | Restaurants | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Buckeye Partners Lp | Energy | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Carnival Corp | Leisure | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Century Communities | Homebuilders/Real Estate | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Cloud Software Grp Inc | Technology | % | 5/8/2024, 9/19/2024 | $ | $ | $ | % | |||||||||||||||||||||||
| Dave & Buster’s Inc | Restaurants | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Energizer Holdings Inc | Consumer-Products | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Harvest Midstream I Lp | Energy | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Howard Midstream Energy | Energy | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Intelligent Packaging | Containers | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Ken Garff Automotive Llc | Super Retail | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Ladder Cap Fin Lllp/corp | Homebuilders/Real Estate | % | 1/23/2024, 6/17/2024 | $ | $ | $ | % | |||||||||||||||||||||||
| Lifepoint Health Inc | Healthcare | % | 9/10/2024, 9/11/2024 | $ | $ | $ | % | |||||||||||||||||||||||
| Lightning Power Llc | Utilities | % | 8/7/2024, 8/16/2024 | $ | $ | $ | % | |||||||||||||||||||||||
| Mcgraw-hill Education | Publishing/Printing | % | 9/11/2024, 9/12/2024 | $ | $ | $ | % | |||||||||||||||||||||||
| Nationstar Mtg Hld Inc | Diversified Financial Services | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Nationstar Mtg Hld Inc | Diversified Financial Services | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Olympus Wtr Us Hldg Corp | Chemicals | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Owens-brockway | Containers | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Pactiv Evergreen Group | Containers | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Penn Entertainment Inc | Gaming | % | 2/14/2024, 2/15/2024, 2/20/2024, 2/22/2024 | $ | $ | $ | % | |||||||||||||||||||||||
| Prime Healthcare Service | Healthcare | % | 8/15/2029, 8/29/2024 | $ | $ | $ | % | |||||||||||||||||||||||
| Provident Fdg/pfg Fin | Diversified Financial Services | % | 9/10/2024, 9/17/2024 | $ | $ | $ | % | |||||||||||||||||||||||
| Rocket Software Inc | Technology | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Rockies Express Pipeline | Energy | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Scih Salt Holdings Inc | Chemicals | % | 9/3/2024, 9/4/2024 | $ | $ | $ | % | |||||||||||||||||||||||
| Service Properties Trust | Homebuilders/Real Estate | % | 2/1/2024, 6/6/2024 | $ | $ | $ | % | |||||||||||||||||||||||
| Shea Homes Lp/fndg Cp | Homebuilders/Real Estate | % | 7/8/2024, 7/9/2024 | $ | $ | $ | % | |||||||||||||||||||||||
| Standard Industries Inc | Building Materials | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Transdigm Inc | Aerospace/Defense | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Univision Communications | Broadcasting | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Venture Global Lng Inc | Energy | % | 7/22/2024, 7/24/2024 | $ | $ | $ | % | |||||||||||||||||||||||
| Victra Hldg/victra Fin | Super Retail | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Wash Multifam Acq Inc | Services | % | 9/10/2024, 9/11/2024 | $ | $ | $ | % | |||||||||||||||||||||||
| Windstream Escrow Llc | Telecommunications | % | 8/28/2024, 8/29/2024 | $ | $ | $ | % | |||||||||||||||||||||||
| Wr Grace Holding Llc | Chemicals | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Total Corporate Bond Investments | $ | $ | $ | % | ||||||||||||||||||||||||||
| Senior Secured Loan Debt Investments | ||||||||||||||||||||||||||||||
| PSA Worldwide T/L (2) | Diversified Support Services | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Arcline FM Holdings, LLC | Capital Goods | % | 7/19/2024, 8/12/2024 | $ | $ | $ | % | |||||||||||||||||||||||
| Autokiniton US Holdings, Inc. | Automotive & Auto Parts | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Boxer Paren Co Inc(AKA Banff Merger Sub Inc) | Technology | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Clydesdale Acquisition Holdings Inc | Containers | % | 5/28/2024, 9/5/2024 | $ | $ | $ | % | |||||||||||||||||||||||
| Cushman & Wakefield US Borrower LLC | Homebuilders/Real Estate | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Dragon Buyer Inc. | Diversified Financial Services | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Fortress Trans & Infrast | Technology | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Leslies Poolmart Inc | Super Retail | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Madison Safety & Flow LLC | Building Materials | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Mauser Packaging Solut | Containers | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Nvent Thermal LLC | Capital Goods | % | 9/12/2024, 9/16/2024 | $ | $ | $ | % | |||||||||||||||||||||||
| Tamko Building Products, LLC | Building Materials | % | 6/18/24, 6/27/2024 | $ | $ | $ | % | |||||||||||||||||||||||
| Thunder Generation Funding LLC | Technology | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Verde Purchaser LLC | Containers | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Wilsonart LLC | Building Materials | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Total Senior Secured Loan Debt Investments | $ | $ | $ | % | ||||||||||||||||||||||||||
| Equity Investments - Preferred Stock | ||||||||||||||||||||||||||||||
| PSA Holdings, LLC (2) | Diversified Support Services | % | $ | $ | $ | % | ||||||||||||||||||||||||
| Total Preferred Stock | $ | $ | $ | % | ||||||||||||||||||||||||||
| Total Equity Investments | $ | $ | % | |||||||||||||||||||||||||||
| Short-Term Investments | ||||||||||||||||||||||||||||||
| United States Treasury Bill(3) | N/A | % | $ | $ | $ | % | ||||||||||||||||||||||||
| United States Treasury Bill(3) | N/A | % | | $ | $ | $ | % | |||||||||||||||||||||||
| Total Short-Term Investments | $ | $ | $ | % | ||||||||||||||||||||||||||
| Total Non-Controlled/Non-Affiliated Investments | $ | $ | % | |||||||||||||||||||||||||||
| Total Affiliated Investments | $ | $ | % | |||||||||||||||||||||||||||
| Total Investments | $ | $ | % | |||||||||||||||||||||||||||
| Assets in Excess of Other liabilities | % | |||||||||||||||||||||||||||||
| Net assets | $ | % | ||||||||||||||||||||||||||||
SOFR - Secured Overnight Financing Rate.
| (1) |
| (2) |
| (3) |
The accompanying notes are an integral part of these consolidated financial statements.
5
Muzinich Corporate Lending Income Fund, Inc.
Notes to Consolidated Financial Statements (Unaudited)
| 1. | Organization |
Muzinich Corporate Lending Income Fund, Inc. (the “Company,” “we,” “our,” or “us”) is a Delaware corporation formed on July 5, 2023. The Company is structured as an externally managed, non-diversified, closed-end management investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). The Company was formed primarily to generate current income and, to a lesser extent, capital appreciation through investments in secured debt, including first lien, second lien and unitranche debt, as well as unsecured debt, including mezzanine debt and, to a lesser extent, in equity instruments of private companies.
The Company’s investment activities are managed by Muzinich Direct Lending Adviser, LLC (the “Adviser”), an investment adviser registered with the Securities and Exchange Commission (“SEC”) under the Investment Advisers Act of 1940, as amended (the “Advisers Act”) and an affiliate of Muzinich & Co., Inc. (“Muzinich”). The Adviser is responsible for originating prospective investments, conducting research and due diligence investigations on potential investments, analyzing investment opportunities, negotiating and structuring the investments and monitoring the investments and portfolio companies of the Company on an ongoing basis. Subject to the supervision of the Company’s board of directors (the “Board” or the “Board of Directors”), the Adviser manages the Company’s day-to-day operations and provides the Company with investment advisory and management services and certain administrative services.
The Company has entered into and expects
to enter into separate subscription agreements with a number of investors providing for the sale of shares of the Company’s common
stock, par value $
In March 2024, the Company established a wholly owned subsidiary named Muzinich Corporate Lending Holding LLC (“Subsidiary”). The Subsidiary holds equity or equity-like investments in partnerships. All intercompany balances are eliminated in consolidation, and the Company is consolidated with the Subsidiary for accounting purposes, but the Subsidiary is not consolidated with the Company for U.S. federal income tax purposes and may incur U.S. federal income tax expense as a result.
Fiscal Year End
The Company’s fiscal year ends on December 31.
6
| 2. | Significant Accounting Policies |
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The accompanying consolidated financial statements of the Company and related financial information have been prepared pursuant to the requirements for reporting on Form 10-Q and Regulation S-X under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company has determined it meets the definition of an investment company and follows the accounting and reporting guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 – Financial Services – Investment Companies (“ASC Topic 946”).
Basis of Consolidation
Under Article 6 of Regulation S-X and
the American Institute of Certified Public Accountants’ (“AICPA”) Audit and Accounting Guide for Investment Companies,
the Company is precluded from consolidating any entity other than another investment company, a controlled operating company that provides
substantially all of its services and benefits to the Company, and certain entities established for tax purposes where the Company holds
a
Use of Estimates
U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of increases and decreases in net assets from operations during the reported periods. The Company believes the estimates and assumptions underlying the consolidated financial statements are reasonable and supportable based on the information available as of September 30, 2024 and December 31, 2023, however macroeconomic, geopolitical and other events may have an impact on the global economy generally, and the Company’s business in particular, making any estimates and assumptions as of September 30, 2024 and December 31, 2023 inherently less certain than they would be absent the current and potential impacts of such circumstances. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ materially.
Cash and Cash Equivalents
Cash and cash equivalents are defined as cash, money market funds, U.S. government securities and investment grade debt instruments with original maturities of three months or less when purchased by the Company. The Company deposits its cash and cash equivalents with financial institutions and, at times, may exceed the Federal Deposit Insurance Corporation insured limit.
Principal Paydowns
The Company may receive principal repayments on its debt investments (“Paydowns”). Any unsettled Paydowns as of period-end are reflected in the Consolidated Statements of Assets and Liabilities, and any realized gains or losses incurred from such Paydowns are reflected as interest income in the Consolidated Statements of Operations.
7
Offering Costs
Offering costs are recorded as a reduction
to paid-in capital. For the three and nine months ended September 30, 2024, the Company incurred offering costs of $
Company Common Stock Share Valuation
In accordance with U.S. GAAP, the net asset value (“NAV”) per share of the outstanding shares of common stock of the Company is determined at least quarterly by dividing the value of total assets minus liabilities by the total number of shares outstanding.
Valuation of Portfolio Securities
As a BDC, the Company will generally invest in illiquid securities, including debt and equity investments of middle-market companies. Under procedures adopted by the Board of Directors, market quotations are generally used to assess the value of the investments for which market quotations are readily available. Short-term investments that have maturities of less than 60 days at time of purchase are valued at amortized cost, which, when combined with any accrued interest, approximates market value.
The Company expects that there will not be readily available market values for many of the investments which are or will be in its portfolio, and such investments will be valued at fair value as determined in good faith by the Adviser, under the oversight of the Board, pursuant to the Adviser’s valuation policy and process as described below. The factors that the Adviser may take into account in determining the fair value of the Company’s generally include, as appropriate, comparisons of financial ratios of the portfolio companies that issued such private equity securities to peer companies that are public, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Adviser considers the pricing indicated by the external event to corroborate or revise the valuation. Under current auditing standards, the notes to the Company’s consolidated financial statements refer to the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on the consolidated financial statements.
With respect to investments for which market quotations are not readily available, the Adviser determines the fair value of such investments in good faith pursuant to Rule 2a-5 under the 1940 Act. Pursuant to Rule 2a-5, the Board has designated the Adviser to perform the fair valuation determinations of the Company’s investments for which market quotations are not readily available, subject to Board oversight, pursuant to valuation procedures approved by the Board of Directors which follow a multi-step valuation process each quarter (or more frequently, as appropriate), as described below:
| (1) | Each portfolio company or investment is initially valued by the investment professionals of the Adviser responsible for the portfolio investment and the “Portfolio Committee” of the Adviser; |
| (2) | Preliminary valuation conclusions are then documented and discussed with the Company’s senior management and that of the Adviser; |
| (3) | At least once annually, the valuation for each portfolio investment is reviewed by an independent valuation firm; |
| (4) | In following these approaches, the types of factors that are taken into account in determining the fair value of such investments include, as relevant, but are not limited to: comparison to publicly traded securities, including such factors as yield, maturity and measures of credit quality; the enterprise value of a portfolio company; the nature and realizable value of any collateral; the portfolio company’s ability to make payments and its earnings and discounted cash flow; and the markets in which the portfolio company does business; |
8
| (5) | The Audit Committee of the Board of Directors reviews the valuations of the Adviser on a quarterly basis; and |
| (6) | The Board of Directors oversees the Company’s valuation process and in support of this oversight, the Adviser provides periodic reports to the Board on valuation matters. |
Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation
The Company measures realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, but considering unamortized upfront fees and prepayment penalties. Net change in unrealized appreciation or depreciation reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.
Interest and Dividend Income Recognition
Interest income is recorded on an accrual basis and includes amortization of premiums or accretion of discounts. Discounts and premiums to par value on securities purchased are accreted and amortized, respectively, into interest income over the contractual life of the respective security using the effective interest method. The amortized cost of investments represents the original cost adjusted for the amortization of premiums or accretion of discounts, if any. Upon prepayment of a loan or debt security, any prepayment premiums, unamortized upfront loan origination fees and unamortized discounts are recorded as interest income in the current period.
Loans are generally placed on non-accrual status when there is reasonable doubt that principal or interest will be collected in full. Accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid current and, in management’s judgment, are likely to remain current. Management may make exceptions to this treatment and determine to not place a loan on non-accrual status if the loan has sufficient collateral value and is in the process of collection.
Dividend income on preferred equity securities is recorded on the accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.
Payment-in-Kind Interest
The Company does not currently hold, but expects to hold in the future, some investments in its portfolio that contain PIK interest provisions. The PIK interest, computed at the contractual rate specified in each loan agreement, is added to the principal balance of the loan, rather than being paid to the Company in cash, and is recorded as interest income. Thus, the actual collection of PIK interest may be deferred until the time of debt principal repayment. PIK interest, which is a non-cash source of income, is included in the Company’s taxable income and therefore affects the amount the Company is required to distribute to shareholders to maintain its qualification as a RIC for U.S. federal income tax purposes, even though the Company has not yet collected the cash. Generally, when current cash interest and/or principal payments on a loan become past due, or if the Company otherwise does not expect the borrower to be able to service its debt and other obligations, the Company will place the investment on non-accrual status and will generally cease recognizing PIK interest income on that loan for financial reporting purposes until all principal and interest have been brought current through payment or due to a restructuring such that the interest income is deemed to be collectible. The Company writes off any accrued and uncollected PIK interest when it is determined that the PIK interest is no longer collectible.
9
Other Income
From time to time, the Company may receive fees for services provided to portfolio companies. These fees will generally only be available to the Company as a result of closing investments, will normally be paid at the closing of the investment, are expected to be non-recurring and will be recognized as revenue when earned upon closing of the investment. The services provided vary by investment, but can include closing work, diligence or other similar fees and fees for providing managerial assistance to the Company’s portfolio companies. In addition, the Company may generate revenue in the form of commitment, origination, structuring or diligence fees, monitoring fees and possibly consulting and performance-based fees.
Deal Origination Costs
The Company records origination and other expenses related to its investments as deferred financing costs. These expenses are deferred and amortized over the life of the related investment. Deal origination costs are presented on the Consolidated Statements of Assets and Liabilities as a direct deduction from the investment. In circumstances in which there is not an associated investment amount recorded in the consolidated financial statements when the deal origination costs are incurred, such deal origination costs will be reported on the Consolidated Statements of Assets and Liabilities as a liability until the investment is recorded.
Distributions to Stockholders
Distributions to stockholders are recorded on the record date. The amount to be distributed is determined by the Board of Directors and is generally based upon current and estimated net earnings. Net realized long-term capital gains, if any, would be generally distributed at least annually, although the Company may decide to retain such capital gains for investment.
The Company has adopted a Distribution Reinvestment Plan, pursuant to which it will reinvest all cash dividends declared by the Board of Directors on behalf of its stockholders who do not elect to receive their dividends in cash. For more information on the Distribution Reinvestment Plan, see “Note 7. Net Assets – Distribution Reinvestment Plan” in these Notes to Consolidated Financial Statements.
Foreign Security and Currency Translations
Foreign security and currency translations may involve certain considerations and risks not typically associated with investing in U.S. companies and U.S. government securities. These risks include, but are not limited to, currency fluctuations and revaluations and future adverse political, social and economic developments, which could cause investments in foreign markets to be less liquid and prices to be more volatile than those of comparable U.S. companies or U.S. government securities.
Recently Issued Accounting Pronouncements
The Company considers the applicability and impact of all accounting standard updates (“ASUs”) issued by the FASB. ASUs not listed were assessed by the Company and either determined to be not applicable or expected to have minimal impact on its consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”),” which enhances disclosure requirements about significant segment expenses that are regularly provided to the chief operating decision maker (the “CODM”). ASU 2023-07, among other things, (i) requires a single segment public entity to provide all of the disclosures as required by Topic 280, (ii) requires a public entity to disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources and (iii) provides the ability for a public entity to elect more than one performance measure. ASU 2023-07 is effective for the fiscal years beginning after December 15, 2023, and interim periods beginning with the first quarter ended March 31, 2025. Early adoption is permitted and retrospective adoption is required for all prior periods presented. The Company is currently assessing the impact of this guidance; however, the Company does not expect a material impact to its consolidated financial statements.
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In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”),” which intends to improve the transparency of income tax disclosures. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 and is to be adopted on a prospective basis with the option to apply retrospectively. The Company is currently assessing the impact of this guidance; however, the Company does not expect a material impact to its consolidated financial statements.
Income Taxes
The Company has elected to be treated for U.S. federal income tax purposes as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). So long as the Company maintains its status as a RIC, it generally will not be subject to U.S. federal income taxes on any ordinary income or capital gains that it distributes to its stockholders as dividends. Rather, any tax liability related to income distributed by the Company represents obligations of the Company’s investors and will not be reflected in the consolidated financial statements of the Company. The Company will be subject to U.S. federal income tax at the regular corporate rates on any income, including capital gains not distributed (or deemed distributed) to its stockholders.
To qualify as a RIC under Subchapter
M of the Code, the Company must, among other things, meet certain source of income and asset diversification requirements. In addition,
to qualify for taxation as a RIC, the Company must distribute to its stockholders on a timely basis each year at least
In order for the Company not to be
subject to a
The Company evaluates tax positions taken or expected to be taken in the course of preparing its consolidated financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are reserved and recorded as a tax benefit or expense in the current year. All penalties and interest associated with income taxes are included in income tax expense.
In March 2024, the Company established the Subsidiary to hold equity or equity-like investments in partnerships. All intercompany balances are eliminated in consolidation and the Company is consolidated with the Subsidiary for accounting purposes, but the Subsidiary is not consolidated with the Company for U.S. federal income tax purposes and may incur U.S. federal income tax expense as a result.
Although the Company files federal and state tax returns, its major tax jurisdiction is federal.
11
| 3. | Related Party Transactions |
Investment Advisory Agreement
On September 14, 2023, the Company entered into an investment advisory agreement (the “Investment Advisory Agreement”) with the Adviser, pursuant to which the Adviser manages the Company’s investment program and related activities. The advisory fees consist of a management fee and an incentive fee. The cost of both the management fee and the incentive fee is ultimately borne by the Company’s stockholders.
The Adviser elected to incur the organizational
and offering fees associated with the Company through January 19, 2024, on which date the Company became obligated to reimburse the Adviser
for such advanced expenses. As of September 30, 2024, the total organizational and offering fees incurred by the Company were $
Management Fees
Pursuant to the Investment Advisory
Agreement, the Company’s Adviser accrues, on a quarterly basis in arrears, a management fee (the “Base Management Fee”)
at an annual rate of
For the three and nine months ended
September 30, 2024 and the period from September 8, 2023 (commencement of operations) through September 30, 2023, the Company incurred
Base Management Fees of $
Incentive Fee
Pursuant to the Investment Advisory Agreement, the Company incurs an incentive fee (the “Incentive Fee”) payable to the Adviser.
The Incentive Fee consists of two components that are independent of each other, with the result that one component may be payable even if the other is not. A portion of the Incentive Fee is based on a percentage of the Company’s income and a portion is based on a percentage of the Company’s capital gains, each as described below.
Incentive Fee Based on Income
The portion of the Incentive Fee based on the Company’s income is based on Pre-Incentive Fee Net Investment Income Returns. “Pre-Incentive Fee Net Investment Income Returns” means, as the context requires, either the dollar value of, or percentage rate of return on the value of the Company’s net assets at the end of the immediate preceding quarter from, interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies) accrued during the calendar quarter, minus the Company’s operating expenses accrued for the quarter (including the Base Management Fee, fees and expenses payable under the Company’s administration agreement with U.S. Bancorp Fund Services, LLC (“U.S. Bank,” and in such capacity, the “Administrator”) (the “Administration Agreement”), and any interest expense or fees on any credit facilities or outstanding debt and dividends paid on any issued and outstanding preferred shares, but excluding the Incentive Fee).
Pre-Incentive Fee Net Investment Income Returns include, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with payment-in-kind interest and zero-coupon securities), accrued income that the Company has not yet received in cash. Pre-Incentive Fee Net Investment Income Returns do not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.
Pre-Incentive Fee Net Investment Income
Returns, expressed as a rate of return on the value of the Company’s net assets at the end of the immediately preceding quarter,
is compared to a “hurdle rate” of return of
The Company will pay the Adviser an Incentive Fee quarterly in arrears with respect to the Company’s Pre-Incentive Fee Net Investment Income Returns in each calendar quarter as follows:
| ● | 100% of the dollar amount of Pre-Incentive Fee Net Investment Income Returns with respect to that portion of such Pre-Incentive Fee Net Investment Income Returns, if any, that exceeds the hurdle rate until the Adviser has received 12.5% of the total Pre-Incentive Fee Net Investment Income Returns for that calendar quarter (the Company refers to this portion of the Pre-Incentive Fee Net Investment Income Returns (which exceeds the hurdle rate) as the “catch-up”); and |
| ● | 12.5% of the dollar amount of all Pre-Incentive Fee Net Investment Income Returns, if any, once the Adviser has received the full catch-up. |
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Incentive Fee Based on Capital Gains
The second component of the Incentive Fee, the Incentive Fee on based capital gains, is payable at the end of each calendar year in arrears. The amount payable equals:
| ● |
Each year, the fee paid for the Incentive Fee based on capital gains is net of the aggregate amount of any previously paid Incentive Fee based on capital gains for all prior periods. The Company will accrue, but will not pay, an Incentive Fee based on capital gains with respect to unrealized appreciation because an Incentive Fee based on capital gains would be owed to the Adviser if the Company were to sell the relevant investment and realize a capital gain.
If the Investment Advisory Agreement is terminated prior to the termination of the Company (other than an instance in which the Adviser voluntarily terminates the agreement), the Company will pay to the Adviser an Incentive Fee payment in connection with such termination (the “Termination Incentive Fee Payment”). The Termination Incentive Fee Payment will be calculated as of the date the Investment Advisory Agreement is terminated and will equal the amount of Incentive Fee that would be payable to the Adviser if (a) all investments were liquidated for their then-current value (but without taking into account any unrealized appreciation of any investment), and any unamortized deferred investment-related fees would be deemed accelerated, (b) the proceeds from such liquidation were used to pay all the Company’s outstanding liabilities, and (c) the remainder were distributed to stockholders and paid as an Incentive Fee in accordance with the incentive fee calculation methodology, subject to the limitations set forth in Section 205(b)(3) of the Advisers Act. The Company will make the Termination Incentive Fee Payment in cash on or immediately following the date the Investment Advisory Agreement is so terminated.
The Investment Advisory Agreement was approved for an initial two-year term on September 14, 2023, and will remain in full force and effect for successive one-year periods thereafter, but only so long as such continuance is specifically approved at least annually by (a) the vote of a majority of the members of the Board who are not “interested persons,” as defined in Section 2(a)(19) of the 1940 Act, of the Company (the “Independent Directors”) and in accordance with the requirements of the 1940 Act, and (b) by a vote of (1) a majority of the Board or (2) a majority of the Company’s outstanding voting securities. The Investment Advisory Agreement may, on 60 days’ written notice to the other party, be terminated in its entirety at any time without the payment of any penalty, by the Company (following determination by the Board or by vote of a majority of the Company’s outstanding voting securities), or by the Adviser. The Investment Advisory Agreement shall automatically terminate in the event of its assignment.
For the three and nine months ended
September 30, 2024 and the period from September 8, 2023 (commencement of operations) through September 30, 2023, the Company incurred
Incentive Fees of $
Administration Agreement
The Company has entered into an administration servicing agreement (the “Administration Agreement”) with U.S. Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services (“U.S. Bank” or the “Administrator”), pursuant to which the Administrator provides administrative and recordkeeping services necessary for the Company to operate.
Resource Sharing Agreement
The Adviser has entered into a resource sharing agreement (the “Resource Sharing Agreement”) with Muzinich, pursuant to which Muzinich makes certain personnel and resources available to the Adviser to provide certain investment advisory services to the Company under the Investment Advisory Agreement. Through the Resource Sharing Agreement, the Adviser draws on the significant deal origination, credit underwriting, due diligence, investment structuring, execution, portfolio management and monitoring, and operational experience of Muzinich’s investment professionals. The Resource Sharing Agreement may be terminated by either party on 60 days’ notice, which, if terminated, may have a material adverse effect on the Company’s operations.
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Reimbursement of Certain Expenses
During the nine months ended September
30, 2024 and for the period from September 8, 2023 (commencement of operations) through September 30, 2023, Muzinich paid, on behalf of
the Company, certain operating costs that have been recorded by the Company. The Company will reimburse Muzinich for the costs paid on
the Company’s behalf. As of September 30, 2024 and 2023, the total costs reimbursable to Muzinich were $
Shares Held by Affiliated Accounts
As of September 30, 2024, certain entities
affiliated with the Adviser held shares of the Company. Muzinich held
Co-Investment Exemptive Order
On February 2, 2021, the SEC issued an exemptive order (the “Exemptive Order”) which permits the Company to co-invest in portfolio companies with certain funds or entities managed by the Adviser or its affiliates in certain negotiated transactions where co-investing would otherwise be prohibited under the 1940 Act, subject to the conditions of the Exemptive Order. Pursuant to the Exemptive Order, the Company is permitted to co-invest with certain of its affiliates if a “required majority” (as defined in Section 57(o) of the 1940 Act) of the Company’s Independent Directors make certain conclusions in connection with a co-investment transaction, including, but not limited to, that (1) the terms of the potential co-investment transaction, including the consideration to be paid, are reasonable and fair to the Company and its stockholders and do not involve overreaching in respect of the Company or its stockholders on the part of any person concerned, and (2) the potential co-investment transaction is consistent with the interests of the Company’s stockholders and is consistent with its then-current investment objective and strategies.
Investments in Affiliates
Affiliated companies are those that
are “affiliated persons” of the Company, as defined in section 2(a)(3) of the 1940 Act. They include, among other entities,
issuers of which
| 4. | Commitments and Contingencies |
As of both September 30, 2024 and December 30, 2023, the Company had no unfunded commitments to provide debt financing to its portfolio companies. As of both September 30, 2024 and December 30, 2023, there were no capital calls or draw requests made by the Company’s portfolio companies. Any such commitments are generally subject to the Company’s discretion to approve or are subject to the satisfaction of certain financial and nonfinancial covenants and involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Company’s Consolidated Statements of Assets and Liabilities and are not reflected in the Company’s Consolidated Statements of Assets and Liabilities.
As of September 30, 2024, the Company was not subject to any legal proceedings, although the Company may, from time to time, be involved in litigation arising out of operations in the normal course of business or otherwise.
| 5. | Investments |
| September 30, 2024 | ||||||||
| Amortized | Fair | |||||||
| Cost | Value | |||||||
| Corporate Bond Investments | $ | $ | ||||||
| Senior Secured Loan Debt Instruments | ||||||||
| Equity Investments - Preferred Stock | ||||||||
| Short-Term Investments | ||||||||
| Total Investments | $ | $ | ||||||
The Company did not have any investments in its portfolio as of December 31, 2023.
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| Industry | September 30, 2024 | |||
| Energy | % | |||
| Containers | % | |||
| Homebuilders/Real Estate | % | |||
| Diversified Support Services | % | |||
| Technology | % | |||
| Chemicals | % | |||
| Building Materials | % | |||
| Restaurants | % | |||
| Healthcare | % | |||
| Services | % | |||
| Diversified Financial Services | % | |||
| Super Retail | % | |||
| Consumer-Products | % | |||
| Capital Goods | % | |||
| Aerospace/Defense | % | |||
| Broadcasting | % | |||
| Leisure | % | |||
| Publishing/Printing | % | |||
| Airlines | % | |||
| Utilities | % | |||
| Telecommunications | % | |||
| Automotive & Auto Parts | % | |||
| Gaming | % | |||
| Total | % | |||
| 6. | Fair Value of Investments |
Fair value is defined as the price that the Company would receive upon selling an investment or paying to transfer a liability in an orderly transaction to a market participant in the principal or most advantageous market for the investment. Accounting guidance emphasizes that valuation techniques maximize the use of observable market inputs and minimize the use of unobservable inputs.
The valuation hierarchical levels are based upon the transparency of the inputs to the valuation of the investment as of the measurement date. The three levels are defined as follows:
| Level 1 | — | Valuations based on quoted prices in active markets for identical assets or liabilities at the measurement date. | |
| Level 2 | — | Valuations based on inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable at the measurement date. This category includes quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in non-active markets including actionable bids from third parties for privately held assets or liabilities, and observable inputs other than quoted prices such as yield curves and forward currency rates that are entered directly into valuation models to determine the value of derivatives or other assets or liabilities. | |
| Level 3 | — | Valuations based on inputs that are unobservable and where there is little, if any, market activity at the measurement date. |
The inputs for the determination of fair value may require significant management judgment or estimation and are based upon the Adviser’s assessment of the assumptions that market participants would use in pricing the assets or liabilities. These investments include debt and equity investments in private companies or assets valued using the market or income approach, and may involve pricing models whose inputs require significant judgment or estimation because of the absence of any meaningful current market data for identical or similar investments. The inputs in these valuations may include, but are not limited to, capitalization and discount rates and earnings before interest, taxes, depreciation, and amortization (“EBITDA”) multiples. The information may also include pricing information or broker quotes, which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by a disclaimer would result in classification as Level 3 information, assuming no additional corroborating evidence.
15
Pricing inputs and weightings applied to determine fair value require subjective determination. Accordingly, valuations do not necessarily represent the amounts that may eventually be realized from sales or other dispositions of investments.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
| Fair Value Hierarchy as of September 30, 2024 | ||||||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Corporate Bond Investments | $ | $ | $ | $ | ||||||||||||
| Senior Secured Loan Debt Instruments | ||||||||||||||||
| Equity Investments - Preferred Stock | ||||||||||||||||
| Short-Term Investments | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The Company did not have any investments in its portfolio as of December 31, 2023.
| Senior Secured Loan Debt Instruments | For the nine months ended September 30, 2024 | |||
| Fair value, beginning of period | $ | |||
| Purchases of investments | ||||
| Proceeds from principal pre-payments and sales of investments | ( | ) | ||
| Realized gain (loss) | ||||
| Net change in unrealized appreciation/(depreciation) | ||||
| Net accretion of discount on investments | ||||
| Transfers into (out of) Level 3 | ||||
| Fair value, end of period | $ | |||
| Equity Investments – Preferred Stock | For the nine months ended September 30, 2024 | |||
| Fair value, beginning of period | $ | |||
| Purchases of investments | ||||
| Proceeds from principal pre-payments and sales of investments | ||||
| Realized gain (loss) | ||||
| Net change in unrealized appreciation/(depreciation) | ( | ) | ||
| Net accretion of discount on investments | ||||
| Transfers into (out of) Level 3 | ||||
| Fair value, end of period | $ | |||
The Company did not have any investments in its portfolio for the period from September 8, 2023 (commencement of operations) through September 30, 2023.
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| Net Change in Unrealized Appreciation/(Depreciation) | For the nine months | |||
| Senior Secured Loan Debt Instruments | $ | |||
| Equity Investments – Preferred Stock | ( | ) | ||
| Total | $ | |||
The following tables present quantitative
information about the significant unobservable inputs of the Company’s Level 3 investments as of September 30, 2024.
| Fair Value September 30, 2024 | Valuation Technique | Unobservable Input | Range/Input | Weighted Average Inputs | ||||||||||||
| Senior Secured Loan Debt Instruments (Non-Liquid1) | $ | % | % | |||||||||||||
| Equity Investments - preferred Stock | $ | x | x | |||||||||||||
| Total | $ | |||||||||||||||
| 1) | Privately held assets without available third-party pricing or trading information. |
| 7. | Net Assets |
Common Stock Issuances
| Date | Shares issued and sold | Aggregate purchase price | ||||||
| January 19, 2024 | $ | |||||||
For the period from September 8, 2023 (commencement of operations) through September 30, 2023, the Company had the following Common Stock issuances:
| Date | Shares issued and sold |
Aggregate purchase price |
||||||
| September 8, 2023 | $ | |||||||
Distributions
| Record Date | Payable Date | Distribution Rate per Share | Distribution Paid | |||||||
| May 9, 2024 | $ | $ | ||||||||
| August 8, 2024 | $ | $ | ||||||||
For the period from September 8, 2023 (commencement of operations) through September 30, 2023, the Company did not declare any distributions.
17
Distribution Reinvestment Plan
The Company has adopted a distribution reinvestment plan (“DRP”), pursuant to which it will reinvest all cash dividends and other distributions declared by the Board on behalf of its stockholders who do not elect to receive their dividends or other distributions in cash as provided below. As a result, if the Board authorizes, and the Company declares, a cash dividend or other distribution, then stockholders who have not opted out of the DRP will have their cash dividends or other distributions automatically reinvested in additional shares of Common Stock as described below, rather than receiving the cash dividend or other distribution.
No action is required on the part of a registered stockholder to have his, her or its cash dividend or other distribution reinvested in shares of Common Stock. Stockholders can elect to “opt out” of the DRP in their Subscription Agreement or terminate their participation in the DRP under its terms at a later date. If a stockholder elects to opt out of the DRP, it will receive any cash dividends or other distributions the Company declares in cash.
Shares of Common Stock will be issued to each stockholder who participates in the DRP (i) in the event that the applicable Reference NAV (as defined below) has been approved by the Board (or a committee thereof) prior to the payment date of such cash distribution (the “Payment Date”), on the Payment Date or (ii) otherwise, promptly after the date that the Reference NAV has been approved by the Board (or a committee thereof).
The purchase price for shares of Common Stock purchased under the DRP will be determined by dividing the total dollar amount of the distribution payable to a DRP participant by the net asset value per share of the Company’s Common Stock as of the last day of the fiscal quarter immediately preceding the date such distribution was declared (the “Reference NAV”); provided that in the event a distribution is declared on the last day of a fiscal quarter, the Reference NAV shall be deemed to be the net asset value per share of the Company’s Common Stock as of such day.
| Record Date | Payment Date | Shares Issued | ||||
| May 9, 2024 | ||||||
| August 8, 2024 | ||||||
| 8. | Earnings Per Share |
In accordance with the provisions of ASC Topic 260, Earnings per Share (“ASC 260”), basic and diluted net increase in net assets resulting from operations per common share is computed by dividing the net increase in net assets resulting from operations by the weighted average number of shares outstanding during the period. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis. As of September 30, 2024, there were no dilutive shares.
| For the nine months ended September 30, 2024 | For the three months ended September 30, 2024 | |||||||
| Net increase (decrease) in net assets resulting from operations | $ | $ | ||||||
| Weighted average common shares of common stock outstanding – basic and diluted | ||||||||
| Basic and diluted net increase (decrease) in net assets resulting from operations per common share | $ | $ | ||||||
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| 9. | Consolidated Financial Highlights |
For the September 30, | For the period September 8, 2023 through September 30, 2023 | |||||||
| Per Common Share Operating Performance | ||||||||
| Net Asset Value, Beginning of Period | $ | |||||||
| Results of Operations: | ||||||||
| Net Investment Income (Loss)(1) | ||||||||
| Net Realized Gains/(Losses) and Unrealized Appreciation/(Depreciation) | ||||||||
| Net Increase (Decrease) in Net Assets Resulting from Operations | ||||||||
| Distributions to Common Stockholders | ||||||||
| Distributions from Net Investment Income | ( | ) | ||||||
| Net Decrease in Net Assets Resulting from Distributions | ( | ) | ||||||
| Capital Share Transactions | ||||||||
| Issuance of Common Stock(2) | ( | ) | ||||||
| Net Increase (Decrease) Resulting from Capital Share Transactions | ( | ) | ||||||
| Net Asset Value, End of Period | $ | |||||||
| Shares Outstanding, End of Period | ||||||||
| Ratio/Supplemental Data | ||||||||
| Net assets, end of period | $ | |||||||
| Weighted-average shares outstanding(3) | ||||||||
| Total Return(4) | % | % | ||||||
| Portfolio turnover(5) | % | % | ||||||
| Ratio of total expenses to average net assets(6) | % | % | ||||||
| Ratio of net investment income (loss) to average net assets(6) | % | % | ||||||
| (1) |
| (2) |
| (3) |
| (4) |
| (5) |
| (6) |
| 10. | Subsequent Events |
In preparing these consolidated financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the consolidated financial statements were issued. The Company has determined that there were no subsequent events that occurred during such period that would require disclosure in this Form 10-Q or would be required to be recognized in the consolidated financial statements as of September 30, 2024, except as disclosed below.
On October 1, 2024, the Company sold
On November 7, 2024, the Company declared
a distribution of $
On November 7, 2024, the Board of Directors of the Company approved an amendment to the Company’s DRP to clarify the method of calculation for the number of shares issuable under the DRP upon the Board’s declaration of a cash dividend. The amended DRP is effective as of November 21, 2024.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q. Unless indicated otherwise, the “Company,” “we,” “us,” and “our” refer to Muzinich Corporate Lending Income Fund, Inc., and the “Adviser” refers to Muzinich Direct Lending Adviser, LLC, an affiliate of Muzinich & Co., Inc. (together with the Adviser and their other affiliates, collectively, “Muzinich”).
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. Such statements are not historical facts and are based on current expectations, estimates, projections, opinions and/or beliefs of the Company and/or Muzinich. You can identify these statements by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue” or “believe” or the negatives thereof, or other variations thereon or comparable terminology. You should read statements that contain these words carefully because they discuss our plans, strategies, prospects and expectations concerning our business, operating results, financial condition and other similar matters. We believe that it is important to communicate our future expectations to our investors. These forward-looking statements include, but are not limited to, information in this Form 10-Q regarding general domestic and global economic conditions, our future financing plans, our ability to operate as a business development company (“BDC”) and the expected performance of, and the yield on, our portfolio companies. In particular, there are forward-looking statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” There may be events in the future, however, that we are not able to predict accurately or control. The factors referenced under “Part II, Item 1A. Risk Factors,” as well as any cautionary language in this Form 10-Q, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. You should be aware that the occurrence of the events described in these risk factors and elsewhere in this Form 10-Q could have a material adverse effect on our business, results of operation and financial position. Any forward-looking statement made by us in this Form 10-Q speaks only as of the date on which we make it. Factors or events that could cause actual results to differ may emerge from time to time, and it is not possible to predict all of them. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
The following factors are among those that may cause actual results to differ materially from our forward-looking statements:
| ● | our future operating results; |
| ● | our business prospects and the prospects of our portfolio companies; |
| ● | risk associated with possible disruptions in our operations or the economy generally, including the current conflicts between Russia and Ukraine and Israel and Hamas; |
| ● | changes in the general interest rate environment; |
| ● | general economic, political and industry trends and other external factors, including uncertainty surrounding the financial and political stability of the United States and other countries; |
| ● | our contractual arrangements and relationships with third parties; |
| ● | actual and potential conflicts of interest with our Adviser and its affiliates; |
| ● | the dependence of our future success on the general economy and its effect on the industries in which we invest; |
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| ● | the ability of our portfolio companies to achieve their objectives; |
| ● | the use of borrowed money to finance a portion of our investments; |
| ● | the adequacy of our financing sources and working capital; |
| ● | the timing and amount of cash flows, if any, from the operations of our portfolio companies; |
| ● | the ability of our Adviser to locate suitable investments for us and to monitor and administer our investments; |
| ● | the ability of our Adviser and its affiliates to attract and retain highly talented professionals; |
| ● | our ability to qualify and maintain our qualification as a BDC and as a regulated investment company (“RIC”) under the Internal Revenue Code of 1986, as amended (the “Code”); |
| ● | the impact on our business of U.S. and international financial reform legislation, rules and regulations; |
| ● | the effect of changes in tax laws and regulations and interpretations thereof; and |
| ● | the risks, uncertainties and other factors we identify under “Part II, Item 1A. Risk Factors” and elsewhere in this Form 10-Q. |
Although we believe that the assumptions on which these forward-looking statements are based are reasonable, some of those assumptions are based on the work of third parties and any of those assumptions could prove to be inaccurate; as a result, the forward-looking statements based on those assumptions also could prove to be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Form 10-Q should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those referenced in the section entitled “Item 1A. Risk Factors” in Part II of this Form 10-Q and elsewhere in this Form 10-Q. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Form 10-Q. We do not undertake any obligation to update or revise any forward-looking statements or any other information contained herein, except as required by applicable law.
Overview
We were formed on July 5, 2023 under the laws of the State of Delaware. We were initially formed with the name Muzinich Direct Lending Income Fund, Inc., which we changed to Muzinich Corporate Lending Income Fund, Inc. on August 25, 2023. We are structured as an externally managed, non-diversified, closed-end management investment company that has filed an election to be regulated as a BDC under the Investment Company Act of 1940, as amended (the “1940 Act”). We have elected to be treated and intend to qualify annually as a RIC under Subchapter M of the Code for U.S. federal income tax purposes. As such, are required to comply with various regulatory requirements, such as the requirement to invest at least 70% of our assets in “qualifying assets,” source of income limitations, asset diversification requirements, and the requirement to distribute annually at least 90% of our taxable income and tax-exempt interest.
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As of September 30, 2024, we had capital commitments from investors in the amount of $72,000,000. As of September 30, 2024, we had additional paid-in capital in the amount of $72,054,625. See “Equity Activity” under “Financial Condition, Liquidity and Capital Resources” below for further details. We anticipate raising additional equity capital for investment purposes through drawdowns in respect of capital commitments made by investors pursuant to Private Offerings (as defined below).
Subject to the overall supervision of our Board of Directors (the “Board”) and in accordance with the 1940 Act, the Adviser manages our day-to-day operations and provides investment advisory services to us. The Adviser is registered with the Securities and Exchange Commission (“SEC”) as an investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), and manages our investment activities pursuant to an investment advisory agreement (the “Investment Advisory Agreement”) with us. The Adviser has entered into a resource sharing agreement with Muzinich & Co., Inc., pursuant to which Muzinich & Co., Inc. makes certain personnel and resources available to the Adviser to provide certain investment advisory services to us under the Investment Advisory Agreement. Under the Investment Advisory Agreement, we pay the Adviser fees for investment management services consisting of a Base Management Fee and Incentive Fee (each as defined below). The Incentive Fee consists of two components that are independent of each other, with the result that one component may be payable even if the other is not. A portion of the Incentive Fee is based on a percentage of our income and a portion is based on a percentage of our capital gains. See the notes to the consolidated financial statements in this Form 10-Q for more information.
We have also entered into an administration services agreement (the “Administration Agreement”) with U.S. Bancorp Fund Services, LLC (“U.S. Bank,” and in such capacity, the “Administrator”), pursuant to which the Administrator provides the administrative and recordkeeping services necessary for us to operate. In addition, we have entered into a fund accounting servicing agreement with U.S. Bank (the “Fund Accounting Servicing Agreement”), pursuant to which U.S. Bank provides accounting services to us. We will reimburse U.S. Bank for all reasonable costs and expenses incurred by U.S. Bank in providing these services, as provided by the Administration Agreement and Fund Accounting Servicing Agreement, respectively.
The Board has ultimate authority as to our investments, but it delegates authority to the Adviser to select and monitor our investments, subject to the supervision of the Board. A majority of the Board will at all times consist of members who are not “interested persons,” as defined in Section 2(a)(19) of the 1940 Act (the “Independent Directors”).
Private Offerings and Liquidity Events
We are a non-exchange traded, perpetual-life BDC, which is a BDC whose shares are not listed for trading on a stock exchange or other securities market. We use the term “perpetual-life BDC” to describe an investment vehicle of indefinite duration, whose shares are intended to be sold by the BDC on a continuous basis at a price generally equal to the BDC’s net asset value (“NAV”) per share. We reserve the right to issue shares of our Common Stock at a price above the then-calculated NAV per share to allocate initial organizational and offering expenses to newly admitted stockholders at any Subsequent Closing (as defined below). We may not sell any Common Stock below NAV per share, except pursuant to Section 23(b) or Section 63(2) of the 1940 Act.
In our perpetual-life structure, we intend, subject to the Adviser’s commercially reasonable judgment and the Board’s sole discretion, to offer to repurchase our stockholders’ Common Stock on a quarterly basis beginning in the first full calendar quarter following the second anniversary of the Initial Closing Date (as defined herein), but we are not obligated to offer to repurchase Common Stock in any quarter in our discretion. Quarterly repurchases will be limited to 5% of our Common Stock outstanding (either by number of shares or aggregate NAV), as determined by the Board in its discretion. Any repurchase program will be subject to our available cash, compliance with the RIC qualification and diversification rules, the 1940 Act, and Rule 13e-4 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Board will have discretion to commence, amend, or suspend any share repurchase program if it deems such action to be in the best interests of stockholders. We believe that our perpetual nature will enable us to execute a patient and opportunistic strategy and be able to invest across different market environments. A perpetual-life structure may reduce the risk of us being a forced seller of assets in market downturns compared to non-perpetual funds.
We have conducted and expect to conduct private offerings (“Private Offerings”) of our Common Stock to investors in reliance on exemptions from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”). Common Stock will be offered and sold during Private Offerings (i) in the United States under the exemption provided by Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder, and other exemptions of similar import in the laws of the states and jurisdictions where the offering will be made, and (ii) outside of the United States in accordance with Regulation S of the Securities Act. Within the United States, shares of Common Stock are being offered solely to investors that are “accredited investors,” as defined in Rule 501(a) of Regulation D.
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We seek to raise equity capital through private placements on a continuous basis through one or more closings (“Closings”), at which we accept funds from investors in connection with such investors’ purchases of shares of Common Stock (the first such Closing, the “Initial Closing,” and each subsequent closing, a “Subsequent Closing”). The Initial Closing occurred on January 19, 2024 (the “Initial Closing Date”). Each Subsequent Closing will generally occur on a quarterly basis on the first day of each quarter (based on the NAV per share as determined as of the previous day (i.e., the last day of the preceding quarter) or on a date as determined by the Adviser in its sole discretion).
The Board may, in its sole discretion, cause us to conduct a “Liquidity Event,” which is defined as including (1) an initial public offering (“IPO”) or listing of our securities on a national securities exchange (an “Exchange Listing”), or (2) a Sale Transaction. A “Sale Transaction” means (a) the sale of all or substantially all of our assets to, or other liquidity event with, another entity or (b) a transaction or series of transactions, including by way of merger, consolidation, recapitalization, reorganization, or sale of stock, in each case for consideration of either cash and/or publicly listed securities of the acquirer. A Sale Transaction also may include a sale, merger or other transaction with one or more affiliated investment companies managed by the Adviser. We do not anticipate seeking stockholder approval to engage in a Liquidity Event, unless stockholder consent is required by applicable law. The decision to cause us to conduct a Liquidity Event will take into consideration factors such as prevailing market conditions at the time and our portfolio composition. Our ability to commence and consummate a Liquidity Event is not assured, and will depend on a variety of factors, including the size and composition of our portfolio and prevailing market conditions at the time.
Should the Board determine to cause us to conduct a Liquidity Event, each stockholder will be required to cooperate with us and take all actions, execute all documents and provide all consents as may be reasonably necessary or appropriate to consummate a Liquidity Event, it being understood that we may, subject to applicable Delaware law and the 1940 Act and without obtaining the consent of any stockholders, make modifications to our constitutive documents, capital structure and governance arrangements so long as, in the reasonable opinion of the Board, (x) the economic interests of our stockholders are not materially diminished or materially impaired, (y) such modifications are consistent with the requirements applicable to BDCs under the 1940 Act and (z) such modifications are not inconsistent with the provisions set forth in our Private Placement Memorandum.
Upon completion of any Liquidity Event, pre-existing stockholders may also be required to enter into a lock-up agreement with the underwriters of any Liquidity Event or otherwise for a period not to exceed 180 days (or such longer period as may be required or determined to be advisable by the underwriters of the IPO or otherwise based on prevailing market conditions and practice at the time).
Investment Objectives and Strategy
Our investment objective is to generate current income and, to a lesser extent, capital appreciation through investments in secured debt, including first lien, second lien and unitranche debt, as well as unsecured debt, including mezzanine debt and, to a lesser extent, in equity instruments of private companies. We intend to invest primarily in privately owned U.S. middle-market companies that require capital for growth, acquisitions, recapitalizations, refinancings and leveraged buyouts. We seek to partner with strong management teams executing long-term growth strategies that have credit worthy businesses. We may also from time to time invest in larger or smaller or non-U.S. companies. We generally use the term “middle-market” to refer to companies with earnings before interest expense, income tax expense, depreciation and amortization, or “EBITDA,” generally between $3 million and $100 million annually, but will typically target businesses with EBITDA between $3 million and $25 million annually. We use the term “unitranche” to generally refer to debt instruments that combine characteristics of first lien senior secured loans as well as second lien and subordinated loans. Unitranche loans typically include covenants prohibiting or significantly restricting the ability of an issuer to grant liens that would create a security interest senior to the lien created in connection with the unitranche loan. We use the term “mezzanine” to refer to an unsecured loan that typically ranks senior only to a borrower’s equity securities and ranks junior in right of payment to all of such borrower’s other indebtedness. We expect to invest in primary origination investments and also expect to invest a portion of our assets in more liquid credit investments (as described below). We expect to source our primary origination investments through the Adviser’s and its affiliates’ networks of relationships with financial intermediaries (including local and regional investment banks), private equity investment firms, lawyers, accountants, experienced senior management teams and other middle-market lenders. We may seek investment opportunities where we are the sole investor in an investment, and also may seek opportunities to invest alongside one or more other investors. We expect to invest across a number of different industries.
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Under normal circumstances, we will invest at least 80% of our total assets in debt instruments of corporate issuers, including directly originated loans, club deals (investments generally made by a small group of lenders), broadly syndicated loans (“BSLs”) (investments generally arranged or underwritten by investment banks or other intermediaries), high yield and/or investment grade bonds, structured credit investments (including indebtedness issued by collateralized loan obligation vehicles (“CLOs”)), and other debt-related instruments. The Adviser may, without limitation, lead and structure a transaction as sole lender, as the agent of a club credit facility (a group of similar direct lenders), or may participate as a non-agent investor in a large club or syndicated transactions. If we change our 80% policy, we will provide stockholders with at least 60 days’ prior notice of such change.
Although we plan to invest primarily in debt instruments of privately owned U.S. middle-market companies, we may invest a portion of our capital opportunistically in other types of investments, such as in debt instruments of foreign companies, large U.S. companies, and publicly held U.S. middle market companies, BSLs, CLOs, securities of other RICs, bridge financings, and/or equity instruments of private companies. The proportion of these types of investments will change over time given our views on, among other things, the economic and credit environment in which we are operating, although these types of investments generally will not constitute more than 30% of our total assets. We intend to use open-market secondary purchases to maintain liquidity for our share repurchase program and to manage cash before investing subscription proceeds into origination investments, while also seeking attractive investment returns. Secondary purchases may consist of cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment, such that 70% of our assets would be qualifying assets.
We expect to co-invest with Muzinich and its affiliates pursuant to an exemptive order from the SEC issued on March 2, 2021 (the “Order”) permitting us to co-invest with certain affiliates. The Board has determined that it is advantageous for us to co-invest with other accounts managed by the Adviser or its affiliates in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent limitations, including the terms and conditions set forth in the Order.
ESG Investment Criteria
We avoid investing in companies that Muzinich considers to be fundamentally unsustainable in accordance with (i) certain exclusion criteria and (ii) Muzinich’s proprietary environmental, social and governance (“ESG”) scoring systems. Exclusion criteria are assessed prior to investment, and in case of our private debt investments will be applied only at the time of investment. Information on company conduct or involvement in excluded industries is sourced either from independent ESG data providers or directly from the companies themselves.
Key Components of Our Results of Operations
Investments
Our level of investment activity will vary substantially from period to period depending on many factors, including the amount of debt available to middle-market companies, the general economic environment and the competitive environment for the type of investments we make.
Revenues
We expect to generate revenues in the form of interest income from the debt securities we hold and dividends and capital appreciation on either direct equity investments or equity interests obtained in connection with originating loans, such as options, warrants or conversion rights. We expect most of the debt securities we will hold will be floating rate in nature. The debt we invest in will typically not be rated by any rating agency, but if it were, it is likely that such debt would be below investment grade (rated lower than “Baa3” by Moody’s Investors Service, Inc. and lower than “BBB-” by Fitch Ratings, Inc. or Standard & Poor’s Rating Group, a division of The McGraw-Hill Companies, Inc.), which is an indication of having predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. We intend to structure our debt investments with interest payable quarterly, semi-annually or annually, but we may structure certain investments with terms to provide for longer interest payment periods or to allow interest to be paid by adding amounts due to the principal balance of the loan, resulting in deferred cash receipts. In addition, we may also generate revenue in the form of commitment, loan origination, structuring or diligence fees, fees for providing managerial assistance to our portfolio companies, and possibly consulting fees. Certain of these fees may be capitalized and amortized as additional interest income over the life of the related loan.
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Expenses
We anticipate that all investment professionals and staff of the Adviser, when and to the extent engaged in providing investment advisory and management services, and the base compensation, bonus and benefits, and the routine overhead expenses, of such personnel allocable to such services, will be provided and paid for by the Adviser and its affiliates.
We will bear all other costs and expenses of our operations, administration and transactions, including, without limitation, those described in “Item 1. Business – Fees and Expenses” in Part I of our Annual Report on Form 10-K for the fiscal period ended December 31, 2023.
From time to time, our Adviser or its affiliates may pay amounts owed by us to third-party providers of goods or services. We will subsequently reimburse our Adviser for such amounts paid on our behalf. There is no contractual cap on the amount of reasonable costs and expenses for which our Adviser will be reimbursed.
We may also enter into a credit facility or other debt arrangements to partially fund our operations, and could incur costs and expenses including commitment, origination, legal and/or structuring fees and the related interest costs associated with any amounts borrowed.
We have a limited operating history, and therefore this statement concerning additional expenses is necessarily an estimate and may not match our actual results of operations in the future.
Portfolio and Investment Activity
As of September 30, 2024, we had 56 debt investments totaling $59,426,776, and 1 equity investment totaling $480,672 across 55 portfolio companies with an aggregate fair value of approximately $59.9 million. As of September 30, 2024, our debt investments consisted of corporate bonds and senior secured loans. Short-term investments as of September 30, 2024 consisted of United States Treasury bills that will expire within one hundred and twenty days of purchase, with an aggregate fair value of approximately $7.4 million.
The Company’s investment activity for the nine months ended September 30, 2024 is presented below (information presented herein is at cost unless otherwise indicated).
| For the nine months ended September 30, 2024 | ||||
| New investments: | ||||
| Gross investment purchases | $ | 168,794,315 | ||
| Less: sold investments | (102,642,943 | ) | ||
| Total new investments | $ | 66,151,372 | ||
| Principal/par/units amount of investments funded: | ||||
| Corporate Bond Investments | $ | 41,895,576 | ||
| Term loan debt investments | 17,531,200 | |||
| Equity investments | 480,672 | |||
| Number of new investment commitments | 100 | |||
| Average new investment commitment amount | $ | 1,332,777 | ||
| Weighted average maturity for new investment commitments | 3.5 years | |||
| Percentage of new debt investment commitments at floating rates | 42 | % | ||
| Percentage of new debt investment commitments at fixed rates | 58 | % | ||
| Weighted average spread SOFR of new floating rate investment commitments | 3.72 | % | ||
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As of September 30, 2024, the Company’s investments consisted of the following:
| September 30, 2024 | ||||||||||||
| Percentage of Total | ||||||||||||
| Amortized | Fair | Investments at | ||||||||||
| Cost | Value | Fair Value | ||||||||||
| Corporate Bond Investments | $ | 41,315,505 | 41,895,576 | 62.22 | % | |||||||
| Senior secured loan debt instruments | 17,431,672 | 17,531,200 | 26.03 | % | ||||||||
| Equity investments – Preferred Stock | 495,570 | 480,672 | 0.71 | % | ||||||||
| Short-term investments | 7,433,255 | 7,434,984 | 11.04 | % | ||||||||
| Total Investments | $ | 66,676,002 | $ | 67,342,432 | 100.00 | % | ||||||
As of September 30, 2023, we did not have any investments.
The Adviser believes that actively managing an investment allows it to identify problems early and work with companies to develop constructive solutions when necessary. The Adviser will monitor our portfolio with a focus toward anticipating negative credit events. In seeking to maintain portfolio company performance and to help ensure a successful exit, the Adviser will work closely with, as applicable, the lead equity sponsor, portfolio company management, consultants, advisers and other security holders to discuss financial position, compliance with covenants, financial requirements and execution of the portfolio company’s business plan. In addition, the Adviser’s personnel may occupy a seat or serve as an observer on a portfolio company’s board of directors or similar governing body.
Typically, we will receive financial reports detailing operating performance, sales volumes, margins, cash flows, financial position and other key operating metrics on a quarterly basis from portfolio companies. The Adviser will use this data, combined with the knowledge gained through due diligence of the company’s customers, suppliers, competitors, market research and other methods, to conduct an ongoing assessment of the portfolio company’s operating performance and prospects.
Results of Operations
The following table presents our operating results for the three and nine months ended September 30, 2024 and the period from September 8, 2023 (commencement of operations) through September 30, 2023:
| For the nine months ended September 30, 2024 | For the three months ended September 30, 2024 | For the period from September 8, 2023 (commencement of operations) through September 30, 2023 | ||||||||||
| Total investment income | $ | 4,488,529 | $ | 1,389,351 | $ | - | ||||||
| Total expenses | 3,213,976 | 800,136 | - | |||||||||
| Net investment income (loss) | 1,274,553 | 589,215 | - | |||||||||
| Total net realized gains (losses) | 53,430 | 51,719 | - | |||||||||
| Total net change in unrealized appreciation/(depreciation) | 666,429 | 550,208 | - | |||||||||
| Total net realized and unrealized appreciation/(depreciation) | 719,859 | 601,927 | - | |||||||||
| Net increase (decrease) in net assets resulting from operations | $ | 1,994,412 | $ | 1,191,142 | $ | - | ||||||
Investment Income
The following table presents our investment income for the three and nine months ended September 30, 2024 and the period from September 8, 2023 (commencement of operations) through September 30, 2023:
| For the nine months ended September 30, 2024 | For the three months ended September 30, 2024 | For the period from September 8, 2023 (commencement of operations) through September 30, 2023 | ||||||||||
| Interest from corporate bonds, and term loan debt instruments | $ | 4,488,529 | $ | 1,389,351 | $ | - | ||||||
| Commitment fees | - | - | - | |||||||||
| Interest from cash and cash equivalents | - | - | - | |||||||||
| Interest from short-term investments | - | - | - | |||||||||
| Total investment income | $ | 4,488,529 | $ | 1,389,351 | - | |||||||
Investment income increased from $0 for the period from September 8, 2023 (commencement of operations) through September 30, 2023 to $4,488,529 for the nine months ended September 30, 2024 as a result of the addition of investments to our portfolio.
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Expenses
Operating expenses for the three and nine months ended September 30, 2024 and the period from September 8, 2023 (commencement of operations) through September 30, 2023 were as follows:
| For the nine months ended September 30, 2024 | For the three months ended September 30, 2024 | For the period from September 8, 2023 (commencement of operations) through September 30, 2023 | ||||||||||
| Management fees | $ | 627,602 | $ | 226,972 | - | |||||||
| Other operating expenses | 2,586,374 | 573,164 | - | |||||||||
| Total expenses | $ | 3,213,976 | $ | 800,136 | - | |||||||
Total expenses increased from $0 for the period from September 8, 2023 (commencement of operations) through September 30, 2023 to $3,213,976 for the nine months ended September 30, 2024, primarily due to an increase in management fees as a result of investment activity.
Financial Condition, Liquidity and Capital Resources
We expect to generate cash from (1) future offerings of our Common Stock or preferred stock, (2) cash flows from operations and (3) borrowings from banks or other lenders. We will seek to enter into any bank debt, credit facility or other financing arrangements on at least customary market terms; however, we cannot assure you we will be able to do so.
Our primary use of cash will be for (1) investments in portfolio companies and other investments to comply with certain portfolio diversification requirements, (2) the cost of operations (including paying the Adviser), (3) debt service of any borrowings and (4) cash distributions to the holders of our Common Stock.
In addition to using proceeds from the Private Offerings to make investments, our expectation is to also borrow funds to make investments. This is known as “leverage” and may cause us to be more volatile than if we had not been leveraged. This is because leverage tends to exaggerate the effect of any increase or decrease in the value of our net assets. Under the provisions of the 1940 Act, following approval from our initial stockholder of the reduced asset coverage requirements under Section 61(a)(2) of the 1940 Act, which approval became effective on September 13, 2023, we are currently permitted to issue “senior securities” only in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 150% after each issuance of senior securities. For purposes of the 1940 Act, “asset coverage” means the ratio of (1) the total assets of a BDC, less all liabilities and indebtedness not represented by senior securities, to (2) the aggregate amount of senior securities representing indebtedness (plus, in the case of senior securities represented by preferred stock, the aggregate involuntary liquidation preference of such BDC’s preferred stock). Under the 1940 Act, any preferred stock we may issue will constitute a “senior security” for purposes of the 150% asset coverage test. In addition, while any senior securities remain outstanding, we will be required to make provisions to prohibit any dividend distribution to our stockholders or the repurchase of such securities or shares unless we meet the applicable asset coverage ratios at the time of the dividend distribution or repurchase.
In connection with borrowings, our lenders may require us to pledge assets, investor commitments to fund capital calls and/or the proceeds of those capital calls, thereby allowing the lender to call for capital contributions upon the occurrence of an event of default under such financing arrangement. In addition, the lenders may ask us to comply with positive or negative covenants that could have an effect on our operations.
The use of leverage also involves significant risks. Certain trading practices and transactions, which may include, among others, reverse repurchase agreements and the use of when-issued, delayed delivery or forward commitment transactions, may be considered to be borrowings or involve leverage and thus are also subject to 1940 Act restrictions. Short-term credits necessary for the settlement of securities transactions and arrangements with respect to securities lending will not be considered to be borrowings for these purposes. Practices and investments that may involve leverage but are not considered to be borrowings are not subject to the asset coverage requirement. These investments may include certain investments or instruments that have embedded leverage, which may increase the risk of loss from such investments, but are not considered to be borrowings.
The amount of leverage that we employ will depend on our Adviser’s and the Board’s assessment of market conditions and other factors at the time of any proposed borrowing, and there can be no assurance that we will use leverage or that our leveraging strategy will be successful during any period in which it is employed.
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Equity Activity
We have the authority to issue 1,000,000 shares of Common Stock at a $0.001 per share par value. Additionally, we have the authority to issue 15,000 shares of preferred stock at a $0.001 per share par value.
During the nine months ended September 30, 2024, we issued 72,054.6 shares of Common Stock. During the period from September 8, 2023 (commencement of operations) through September 30, 2023, we issued 1 share of Common Stock.
In conjunction with our formation, we issued and sold one share of Common Stock to Muzinich & Co., Inc., an affiliate of the Adviser, for an aggregate purchase price of $1,000. The share of Common Stock was issued and sold in reliance upon the available exemptions from registration requirements of Section 4(a)(2) of the Securities Act.
Contractual Obligations
We have entered into certain contracts under which we have material future commitments. We have entered into the Investment Advisory Agreement with the Adviser, under which the Adviser determines the securities and other assets that we will purchase, retain or sell; determines the composition of our portfolio, the nature and timing of the changes therein and the manner of implementing such changes; identifies, evaluates and negotiates investments we make and/or the structure thereof (including, without limitation, performing due diligence with respect to any instrument and/or company in which we may invest); buys, sells, exchanges, redeems, holds, converts or otherwise deals with and/or executes transactions with respect to, any kind of security or other property in which we may invest; services and monitors our investments, including, without limitation, by exercising or refraining from exercising any right conveyed by a particular investment to buy, sell, subscribe for, exchange or redeem an investment; exercises or refrains from exercising any governance or ownership right conferred by a particular investment; enters into any foreign exchange and/or derivative transactions; and provides us with such other investment advisory, research and related services as we may, from time to time, reasonably require for the investment of our funds and/or which the Adviser reasonably considers to be necessary, desirable or incidental to carrying out the services under the Investment Advisory Agreement. Under the Investment Advisory Agreement, we pay the Adviser fees for investment management services consisting of a Base Management Fee and Incentive Fee. The Incentive Fee consists of two components that are independent of each other, with the result that one component may be payable even if the other is not. A portion of the incentive fee is based on a percentage of our income and a portion is based on a percentage of our capital gains.
Pursuant to the Administration Agreement, the Administrator will provide the administrative and recordkeeping services necessary for us to operate. In addition, we have entered into a fund accounting servicing agreement with U.S. Bank, pursuant to which U.S. Bank will provide accounting services to us.
Hedging
We may, but are not required to, enter into interest rate, foreign exchange or other derivative agreements to hedge interest rate, currency, credit or other risks, but we do not generally intend to enter into any such derivative agreements for speculative purposes. Any derivative agreements entered into for speculative purposes are not expected to be material to our business or results of operations. These hedging activities, which will be in compliance with applicable legal and regulatory requirements, may include the use of futures, options and forward contracts. We will bear the costs incurred in connection with entering into, administering and settling any such derivative contracts. There can be no assurance any hedging strategy we employ will be successful.
Off-Balance Sheet Arrangements
We may become a party to financial instruments with off-balance sheet risk in the normal course of our business to meet the financial needs of our portfolio companies. These instruments may include commitments to extend credit and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the balance sheet. As of both September 30, 2024 and 2023, we had no off-balance sheet arrangements.
Discretionary Repurchase Program
We do not intend to list our Common Stock on a securities exchange and we do not expect there to be a public market for our Common Stock. As a result, if you purchase our Common Stock, your ability to sell your shares of Common Stock will be limited.
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Beginning in the first full calendar quarter following the second anniversary of the Initial Closing Date, and subject to market conditions and the discretion of the Board, we intend to commence a discretionary share repurchase program in which we intend to offer to repurchase, in each quarter, up to 5% our Common Stock outstanding (either by number of shares or aggregate NAV), as determined by the Board in its discretion, as of the close of the previous calendar quarter. Our directors may amend or suspend the share repurchase program at any time if in its reasonable judgment it deems such action to be in our best interest and/or the best interest of our stockholders. As a result, share repurchases may not be available each quarter, such as when a repurchase offer would place an undue burden on our liquidity, adversely affect our operations or risk having an adverse impact on us that would outweigh the benefit of the repurchase offer. We intend to conduct such repurchase offers in accordance with the requirements of Rule 13e-4 promulgated under the Exchange Act and the 1940 Act. All shares of Common Stock purchased by us pursuant to the terms of each tender offer will be retired and thereafter will be authorized and unissued shares of Common Stock. See the Company’s Annual Report on Form 10-K for the fiscal period ended December 31, 2023 for more information regarding our discretionary repurchase program.
We did not repurchase any Common Stock during the nine months ended September 30, 2024 or the period from September 8, 2023 (commencement of operations) through September 30, 2023.
Critical Accounting Policies
Valuation of Portfolio Securities
The NAV per share of our outstanding Common Stock is determined quarterly by dividing the fair value of total assets minus liabilities by the total number of shares of Common Stock outstanding. There is no guarantee that the NAV per share will be equal to the offering price of our Common Stock at any Closing, as we reserve the right to issue shares of Common Stock at a price above the then-calculated NAV per share to allocate initial organizational and offering expenses to newly admitted stockholders at any Subsequent Closing.
We value our investments in accordance with the valuation policies and procedures approved by the Board (“Valuation Policy”). In accordance with Rule 2a-5 under the 1940 Act, the Board has designated the Adviser as our “Valuation Designee”. A readily available market quotation is not expected to exist for most of the investments in our portfolio, and we will value these portfolio investments at fair value as determined in good faith by the Valuation Designee, subject to oversight by the Board, as set forth below:
| 1. | Our valuation process begins with each portfolio company or investment being initially valued by the investment professionals of our Adviser responsible for the portfolio investment and the “Portfolio Committee” of the Adviser; |
| 2. | Preliminary valuation conclusions are then documented and discussed with our senior management and that of our Adviser; |
| 3. | At least once annually, the valuation for each portfolio investment will be reviewed by an independent valuation firm; |
| 4. | In following these approaches, the types of factors that are taken into account in fair value pricing investments include, as relevant, but are not limited to: comparison to publicly-traded securities, including such factors as yield, maturity and measures of credit quality; the enterprise value of a portfolio company; the nature and realizable value of any collateral; the portfolio company’s ability to make payments and its earning and discounted cash flow; and the markets in which the portfolio company does business; |
| 5. | The Audit Committee of our Board reviews the valuations of the Adviser on a quarterly basis; and |
| 6. | Our Board oversees our valuation process and in support of this oversight the Adviser provides periodic reports to the Board on valuation matters. |
Fair value, as defined under Topic 820 of the Financial Accounting Standards Board’s Accounting Standards Codification, as amended (“ASC 820”), is the price that we would receive upon selling an investment or pay to transfer a liability in an orderly transaction to a market participant in the principal or most advantageous market for the investment or liability. ASC 820 emphasizes that valuation techniques maximize the use of observable market inputs and minimize the use of unobservable inputs. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing an asset or liability based on market data obtained from sources independent of our Adviser. Unobservable inputs reflect the assumptions market participants would use in pricing an asset or liability based on the best information available to us at the reporting period date.
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Security Transactions, Realized/Unrealized Gains or Losses and Appreciation or Depreciation, and Income Recognition
Security transactions are recorded on a trade-date basis. We will measure realized gains or losses from the repayment or sale of investments using the specific identification method. The amortized cost basis of investments represents the original cost adjusted for the accretion/amortization of discounts and premiums and upfront loan origination fees. We will report changes in fair value of investments that are measured at fair value as a component of net change in unrealized appreciation (depreciation) on investments in our statements of operations.
Dividends
We intend to pay quarterly distributions to our stockholders out of assets legally available for distribution. All dividends and distributions will be subject to lawfully available funds therefor, and no assurance can be given that we will be able to declare such an initial distribution or distributions in future periods. For the nine months ended September 30, 2024, we declared the following distributions.
| Record Date | Payable Date | Distribution Rate per Share | Distribution Paid | |||||||
| May 9, 2024 | May 20, 2024 | $ | 8.23 | $ | 592,568 | |||||
| August 8, 2024 | August 19, 2024 | $ | 9.59 | $ | 690,727 | |||||
We have elected to be treated, and intend to qualify annually, to be subject to tax as a RIC under Subchapter M of the Code. To qualify for taxation as a RIC, we must, among other things, distribute to our stockholders on a timely basis each year at least 90% of our investment company taxable income. We intend to timely distribute to our stockholders substantially all of our annual taxable income for each taxable year, except that we may retain certain net capital gains (i.e., realized net long-term capital gains in excess of realized net short-term capital losses) for reinvestment and, depending upon the level of taxable income earned in a taxable year, we may choose to carry forward taxable income for distribution in the following taxable year and pay any applicable U.S. federal excise tax. We generally will be required to pay a 4% nondeductible U.S. federal excise tax on certain undistributed income if our distributions in respect of a calendar year do not exceed the sum of (1) 98% of our net ordinary income for the calendar year, (2) 98.2% of our capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar year and (3) any ordinary income and net capital gains that we recognized for preceding calendar years that were not distributed during such calendar years and on which we did not pay any U.S. federal income tax. If we retain net capital gains, we may treat such amounts as deemed distributions to our stockholders. In that case, you will be treated as if you had received an actual distribution of the capital gains we retained and then you reinvested the net after-tax proceeds in our Common Stock. In general, you also will be eligible to claim a tax credit (or, in certain circumstances, obtain a tax refund) equal to your allocable share of the tax we paid on the capital gains deemed distributed to you. The distributions we pay to our stockholders in a taxable year may exceed our taxable income for that taxable year and, accordingly, a portion of such distributions may constitute a return of capital for U.S. federal income tax purposes. The specific tax characteristics of our distributions will be reported to stockholders after the end of the calendar year. Please refer to “Certain U.S. Federal Income Tax Consequences” in our Annual Report on Form 10-K for the fiscal period ended December 31, 2023 for further information regarding the tax treatment of our distributions and the tax consequences of our retention of net capital gains.
In addition, we have adopted a distribution reinvestment plan (“DRP”), pursuant to which we will reinvest all cash dividends and other distributions declared by the Board on behalf of our stockholders who do not elect to receive their dividends or other distributions in cash as provided below. As a result, if the Board authorizes, and we declare, a cash dividend or other distribution, then our stockholders who have not opted out of our DRP will have their cash dividends or other distributions automatically reinvested in additional shares of Common Stock as described below, rather than receiving the cash dividend or other distribution.
No action is required on the part of a registered stockholder to have his, her or its cash dividend or other distribution reinvested in our shares of Common Stock. Stockholders can elect to “opt out” of our DRP in their Subscription Agreement.
If any stockholder initially elects not to participate, they may later become a participant by subsequently completing and executing an enrollment form or any distribution authorization form as may be available from us or any plan administrator we appoint (the “Plan Administrator”). Participation in the DRP will begin with the next distribution payable after acceptance of a participant’s subscription, enrollment or authorization. Shares of Common Stock will be issued to each stockholder who participates in the DRP (i) in the event that the applicable Reference NAV (as defined below) has been approved by the Board (or a committee thereof) prior to the payment date of such cash distribution (the “Payment Date”), on the Payment Date or (ii) otherwise, promptly after the date that the Reference NAV has been approved by the Board (or a committee thereof).
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If a stockholder seeks to terminate its participation in the DRP, notice of termination must be received by us or the Plan Administrator five business days in advance of the first calendar day of the next quarter in order for a stockholder’s termination to be effective for such quarter. Any transfer of shares of Common Stock by a participant to a non-participant will terminate participation in the DRP with respect to the transferred shares. If a participant elects to tender its shares of Common Stock in full, any shares of Common Stock issued to the participant under the DRP subsequent to the expiration of the tender offer will be considered part of the participant’s prior tender, and participant’s participation in the DRP will be terminated as of the valuation date of the applicable tender offer. Any distributions to be paid to such stockholder on or after such date will be paid in cash on the scheduled distribution payment date.
If a stockholder elects to opt out of the DRP, it will receive any cash dividends or other distributions we declare in cash. We may pay any Plan Administrator fees under the DRP.
The purchase price for shares of Common Stock purchased under our DRP will be determined by dividing the total dollar amount of the distribution payable to a DRP participant by the NAV per share of our Common Stock as of the last day of the fiscal quarter immediately preceding the date such distribution was declared (the “Reference NAV”); provided that in the event a distribution is declared on the last day of a fiscal quarter, the Reference NAV shall be deemed to be the NAV per share of our Common Stock as of such day. Shares of Common Stock issued pursuant to our DRP will have the same voting rights as the shares of Common Stock offered pursuant to the Private Offerings.
For the three and nine months ended September 30, 2024 and the period from September 8, 2023 (commencement of operations) through September 30, 2023, we issued 28.9 shares, 54.6 shares and 0 shares under the DRP, respectively.
Security Transactions, Realized/Unrealized Gains or Losses and Appreciation or Depreciation, and Income Recognition.
Security transactions are recorded on a trade-date basis. We will measure realized gains or losses from the repayment or sale of investments using the specific identification method. The amortized cost basis of investments represents the original cost adjusted for the accretion/amortization of discounts and premiums and upfront loan origination fees. We will report changes in fair value of investments that are measured at fair value as a component of net change in unrealized appreciation (depreciation) on investments in our statements of operations.
Compensation of Adviser
Under the Investment Advisory Agreement, we pay the Adviser fees for investment management services consisting of the Base Management Fee and the Incentive Fee. The Base Management Fee and Incentive Fee for any partial quarter will be appropriately prorated (based on the number of days actually elapsed relative to the total number of days in such quarter).
Base Management Fee
The Base Management Fee is payable quarterly in arrears at an annual rate of 1.25% of the value of our net assets as of the beginning of the first calendar day of the applicable quarter. Such amount shall be appropriately adjusted (based on the number of days actually elapsed relative to the total number of days in such calendar quarter) for any share issuances or repurchases we make during a calendar quarter. For purposes of the Investment Advisory Agreement, net assets means our total assets less liabilities determined on a consolidated basis in accordance with U.S. GAAP.
For the three and nine months ended September 30, 2024 and the period from September 8, 2023 (commencement of operations) through September 30, 2023, we incurred Base Management Fees of $226,972, $627,602, and $0, respectively.
Incentive Fee
The Incentive Fee consists of two components that are independent of each other, with the result that one component may be payable even if the other is not. A portion of the incentive fee is based on a percentage of our income and a portion is based on a percentage of our capital gains, each as described below.
Incentive Fee Based on Income
The portion of the Incentive Fee based on our income is based on Pre-Incentive Fee Net Investment Income Returns. “Pre-Incentive Fee Net Investment Income Returns” means, as the context requires, either the dollar value of, or percentage rate of return on the value of our net assets at the end of the immediate preceding quarter from, interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies) accrued during the calendar quarter, minus our operating expenses accrued for the quarter (including the Base Management Fee, fees and expenses payable under the Administration Agreement entered into between us and the Administrator, and any interest expense or fees on any credit facilities or outstanding debt and dividends paid on any issued and outstanding preferred shares, but excluding the Incentive Fee).
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Pre-Incentive Fee Net Investment Income Returns include, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK (“Payment-In-Kind”) interest and zero-coupon securities), accrued income that we have not yet received in cash. Pre-Incentive Fee Net Investment Income Returns do not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.
Pre-Incentive Fee Net Investment Income Returns, expressed as a rate of return on the value of our net assets at the end of the immediately preceding quarter, is compared to a “hurdle rate” of return of 1.75% per quarter (7% annualized).
We will pay the Adviser an Incentive Fee quarterly in arrears with respect to our Pre-Incentive Fee Net Investment Income Returns in each calendar quarter as follows:
| ● | No incentive fee based on Pre-Incentive Fee Net Investment Income Returns in any calendar quarter in which our Pre-Incentive Fee Net Investment Income Returns do not exceed the hurdle rate of 1.75% per quarter (7% annualized); |
| ● | 100% of the dollar amount of Pre-Incentive Fee Net Investment Income Returns with respect to that portion of such Pre-Incentive Fee Net Investment Income Returns, if any, that exceeds the hurdle rate until the Adviser has received 12.5% of the total Pre-Incentive Fee Net Investment Income Returns for that calendar quarter (the Company refers to this portion of the Pre-Incentive Fee Net Investment Income Returns (which exceeds the hurdle rate) as the “catch-up”); and |
| ● | 12.5% of the dollar amount of all Pre-Incentive Fee Net Investment Income Returns, if any, once the Adviser has received the full catch-up. |
Incentive Fee Based on Capital Gains
The second component of the Incentive Fee, the Incentive Fee on based capital gains, is payable at the end of each calendar year in arrears. The amount payable equals:
| ● | 12.5% of cumulative realized capital gains from inception through the end of such calendar, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid Incentive Fee based on capital gains as calculated in accordance with U.S. GAAP. |
Each year, the fee paid for the Incentive Fee based on capital gains is net of the aggregate amount of any previously paid Incentive Fee based on capital gains for all prior periods. We will accrue, but will not pay, an Incentive Fee based on capital gains with respect to unrealized appreciation because an Incentive Fee based on capital gains would be owed to the Adviser if we were to sell the relevant investment and realize a capital gain.
For the three and nine months ended September 30, 2024 and the period from September 8, 2023(commencement of operations) through September 30, 2023, the Company incurred Incentive Fees of $75,306, $90,052, and $0, respectively.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are subject to financial market risks, including changes in interest rates. To the extent that we borrow money to make investments, our net investment income will be dependent upon the difference between the rate at which we borrow funds and the rate at which we invest these funds. A rise in the general level of interest rates can be expected to lead to higher interest rates applicable to the variable rate investments we may hold and to declines in the value of any fixed rate investments we may hold. A rise in interest rates would also be expected to lead to higher costs on any outstanding floating rate borrowings, which may reduce our net investment income.
We intend to invest primarily in illiquid debt and equity securities of private companies. Most of our investments will not have a readily available market price, and we will value these investments at fair value as determined in good faith by the Adviser, overseen by the Board, in accordance with our Valuation Policy. There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.
Because we expect that most of our investments will bear interest at floating rates, we anticipate that an increase in interest rates would have a corresponding increase in our interest income that would likely offset any increase in our cost of funds and, thus, net investment income would not be reduced. However, there can be no assurance that a significant change in market interest rates will not have an adverse effect on our net investment income.
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We expect that our long-term investments will be financed primarily with equity and debt. If deemed prudent, we may use interest rate risk management techniques in an effort to minimize our exposure to interest rate fluctuations. These techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act. Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition and results of operations.
In addition, any investments we make that are denominated in a foreign currency will be subject to risks associated with changes in currency exchange rates. These risks include the possibility of significant fluctuations in the foreign currency markets, the imposition or modification of foreign exchange controls and potential illiquidity in the secondary market. These risks will vary depending upon the currency or currencies involved.
Interest Rate Risk
Based on our Consolidated Statement of Assets and Liabilities as of September 30, 2024, the following table shows the annualized impact on net investment income of hypothetical base rate changes in interest rates (considering interest rate floors and ceilings for floating rate instruments assuming no changes in our investment and borrowing structure) in thousands.
| Basis Point Change | Interest Income | Interest Expense | Net Income | |||||||||
| -25 Basis Points | $ | (50 | ) | $ | - | $ | (50 | ) | ||||
| Base Interest Rate | - | - | - | |||||||||
| +100 Basis Points | 200 | - | 200 | |||||||||
| +200 Basis Points | 400 | - | 400 | |||||||||
| +300 Basis Points | 600 | - | 600 | |||||||||
This analysis is indicative of the potential impact on our investment income as of September 30, 2024, assuming an immediate and sustained change in interest rates as noted. In addition, this analysis does not adjust for potential changes in our portfolio after September 30, 2024 nor does it take into account any changes in the credit performance of our loans that might occur should interest rates change.
For the nine months ended September 30, 2024 and the period from September 8, 2023 (commencement of operations) through September 30, 2023, there were fifteen and zero floating rate loans held, respectively.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
As of September 30, 2024 (the end of the period covered by this report), our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
(b) Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Part II OTHER INFORMATION
Item 1. Legal Proceedings
Neither we nor the Adviser are currently subject to any material legal proceedings, nor, to our knowledge, are any material legal proceedings threatened against us or the Adviser. From time to time, we or the Adviser may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our portfolio companies. Our business is also subject to extensive regulation, which may result in regulatory proceedings against us. While the outcome of these legal or regulatory proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations.
Item 1A. Risk Factors
You should carefully consider the risks referenced below and all other information contained in this Quarterly Report on Form 10-Q, including our interim consolidated financial statements and the related notes thereto, before making a decision to purchase our securities. Any such risks and uncertainties are not the only ones facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may have a material adverse effect on our business, financial condition and/or operating results, as well as the value of our securities.
In addition to the other information set forth in this report, you should carefully consider the risk factors previously disclosed in our Annual Report on Form 10-K for the period ended December 31, 2023 (filed with the SEC on March 29, 2024), which could materially affect our business, financial condition or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Sales of Unregistered Equity Securities
Except as previously reported on our current reports on Form 8-K, we did not sell any securities during the period covered by this Quarterly Report on Form 10-Q that were not registered under the Securities Act.
Issuer Purchases of Equity Securities
We did not repurchase any of our equity securities during the nine months ended September 30, 2024.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosure
Not applicable.
Item 5. Other Information
| (a) | None |
| (b) | None |
| (c) | During the fiscal quarter ended September 30, 2024, none of our directors or executive officers |
We have adopted insider trading policies and procedures governing the purchase, sale, and disposition of our securities by our officers and directors that are reasonably designed to promote compliance with insider trading laws, rules and regulations.
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Item 6. Exhibits
The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC:
| 3.1 | Amended and Restated Certificate of Incorporation(1) | |
| 3.2 | Bylaws(1) | |
| 10.1 | Form of Distribution Reinvestment Plan* | |
| 31.1 | Certification of Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended* | |
| 31.2 | Certification of Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended* | |
| 32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002** | |
| 32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002** | |
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.* | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document* | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document* | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document* | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document* | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document* | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document)* |
| (1) | Previously filed as an exhibit to Amendment No. 1 to the Registrant’s Registration Statement on Form 10 (File No. 000-56572) filed with the SEC on September 15, 2023. |
| * | Filed herewith. |
| ** | Furnished herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Muzinich Corporate Lending Income Fund, Inc. | |||
| Date: November 12, 2024 | By: | /s/ Jeffrey Youle | |
| Name: | Jeffrey Youle | ||
| Title: | Chief Executive Officer | ||
| Date: November 12, 2024 | By: | /s/ Paul Fehre | |
| Name: | Paul Fehre | ||
| Title: | Chief Financial Officer | ||
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